Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC. Consolidated Statement of Income For Year Ended December 31, $ millions 2018 Revenue $57,449 Costs and expenses Cost of revenue 10,966 Research and development 11,884 Marketing and sales 7,846 General and administrative 5,062 Total costs and expenses 35,758 Income from operations 21,691 Interest and other income (expense), net 2,059 Income before provision for income taxes 23,750 Provision for income taxes 3,249 Net income $20,501 FACEBOOK INC. Consolidated Balance Sheet At December 31, $ millions 2018 2017 Current assets Cash and cash equivalents $11,630 $8,079 Marketable securities 31,095 35,243 Accounts receivable, net 9,198 5,832 Prepaid expenses and other current assets 1,779 1,020 Total current assets 53,702 50,174 Property and equipment, net 24,683 15,332 Intangible assets, net 1,294 1,884 Goodwill 19,912 19,832 Other assets 2,576 2,135 Total assets $102,167 $89,357 Current liabilities Accounts payable $820 $380 Partners payable 2,152 2,001 Accrued expenses and other current liabilities 5,509 2,892 Deferred revenue and deposits 1,758 98 Total current liabilities 10,239 3,760 Other liabilities 6,190 6,417 Total liabilities 16,429 10,177 Stockholders' equity Common stock and additional paid-in capital 42,906 43,806 Accumulated other comprehensive loss (760) (227) Retained earnings 43,592 35,601 Total stockholders' equity 85,738 79,180 Total liabilities and stockholders' equity $102,167 $89,357 a. Compute return on equity (ROE). Numerator Denominator ROE Answer Answer Answer Answer b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage. Numerator Denominator ROA Answer Answer Answer Answer Numerator Denominator FL Answer Answer Answer Answer Ratio Number ROA Answer FL Answer ROE ***ROE may be different from ROE calculation in part a due to rounding c. Calculate the profitability and productivity components of ROA. Numerator Denominator PM Answer Answer Answer Answer Numerator Denominator AT Answer Answer Answer Answer d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL. Ratio Number PM Answer AT Answer FL Answer ROE
Compute the DuPont Disaggregation of ROE Refer to the balance sheets and income statement below for Facebook Inc. FACEBOOK INC. Consolidated Statement of Income For Year Ended December 31, $ millions 2018 Revenue $57,449 Costs and expenses Cost of revenue 10,966 Research and development 11,884 Marketing and sales 7,846 General and administrative 5,062 Total costs and expenses 35,758 Income from operations 21,691 Interest and other income (expense), net 2,059 Income before provision for income taxes 23,750 Provision for income taxes 3,249 Net income $20,501 FACEBOOK INC. Consolidated Balance Sheet At December 31, $ millions 2018 2017 Current assets Cash and cash equivalents $11,630 $8,079 Marketable securities 31,095 35,243 Accounts receivable, net 9,198 5,832 Prepaid expenses and other current assets 1,779 1,020 Total current assets 53,702 50,174 Property and equipment, net 24,683 15,332 Intangible assets, net 1,294 1,884 Goodwill 19,912 19,832 Other assets 2,576 2,135 Total assets $102,167 $89,357 Current liabilities Accounts payable $820 $380 Partners payable 2,152 2,001 Accrued expenses and other current liabilities 5,509 2,892 Deferred revenue and deposits 1,758 98 Total current liabilities 10,239 3,760 Other liabilities 6,190 6,417 Total liabilities 16,429 10,177 Stockholders' equity Common stock and additional paid-in capital 42,906 43,806 Accumulated other comprehensive loss (760) (227) Retained earnings 43,592 35,601 Total stockholders' equity 85,738 79,180 Total liabilities and stockholders' equity $102,167 $89,357 a. Compute return on equity (ROE). Numerator Denominator ROE Answer Answer Answer Answer b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage. Numerator Denominator ROA Answer Answer Answer Answer Numerator Denominator FL Answer Answer Answer Answer Ratio Number ROA Answer FL Answer ROE ***ROE may be different from ROE calculation in part a due to rounding c. Calculate the profitability and productivity components of ROA. Numerator Denominator PM Answer Answer Answer Answer Numerator Denominator AT Answer Answer Answer Answer d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL. Ratio Number PM Answer AT Answer FL Answer ROE
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Compute the DuPont Disaggregation of ROE
Refer to the balance sheets and income statement below for Facebook Inc.
FACEBOOK INC. | |
---|---|
Consolidated Statement of Income | |
For Year Ended December 31, $ millions | 2018 |
Revenue | $57,449 |
Costs and expenses | |
Cost of revenue | 10,966 |
Research and development | 11,884 |
Marketing and sales | 7,846 |
General and administrative | 5,062 |
Total costs and expenses | 35,758 |
Income from operations | 21,691 |
Interest and other income (expense), net | 2,059 |
Income before provision for income taxes | 23,750 |
Provision for income taxes | 3,249 |
Net income | $20,501 |
FACEBOOK INC. | ||
---|---|---|
Consolidated |
||
At December 31, $ millions | 2018 | 2017 |
Current assets | ||
Cash and cash equivalents | $11,630 | $8,079 |
Marketable securities | 31,095 | 35,243 |
9,198 | 5,832 | |
Prepaid expenses and other current assets | 1,779 | 1,020 |
Total current assets | 53,702 | 50,174 |
Property and equipment, net | 24,683 | 15,332 |
Intangible assets, net | 1,294 | 1,884 |
19,912 | 19,832 | |
Other assets | 2,576 | 2,135 |
Total assets | $102,167 | $89,357 |
Current liabilities | ||
Accounts payable | $820 | $380 |
Partners payable | 2,152 | 2,001 |
Accrued expenses and other current liabilities | 5,509 | 2,892 |
Deferred revenue and deposits | 1,758 | 98 |
Total current liabilities | 10,239 | 3,760 |
Other liabilities | 6,190 | 6,417 |
Total liabilities | 16,429 | 10,177 |
Common stock and additional paid-in capital | 42,906 | 43,806 |
Accumulated other comprehensive loss | (760) | (227) |
43,592 | 35,601 | |
Total stockholders' equity | 85,738 | 79,180 |
Total liabilities and stockholders' equity | $102,167 | $89,357 |
a. Compute return on equity (ROE).
Numerator | Denominator | ROE | |
---|---|---|---|
Answer | Answer | ||
Answer | Answer |
b. Apply the DuPont disaggregation into return on assets (ROA) and financial leverage.
Numerator | Denominator | ROA | |
---|---|---|---|
Answer | Answer | ||
Answer | Answer |
Numerator | Denominator | FL | |
---|---|---|---|
Answer | Answer | ||
Answer | Answer |
Ratio | Number | |
---|---|---|
ROA | Answer | |
FL | Answer | |
ROE |
***ROE may be different from ROE calculation in part a due to rounding
c. Calculate the profitability and productivity components of ROA.
Numerator | Denominator | PM | |
---|---|---|---|
Answer | Answer | ||
Answer | Answer |
Numerator | Denominator | AT | |
---|---|---|---|
Answer | Answer | ||
Answer | Answer |
d. Confirm the full DuPont disaggregation: ROE = PM × AT × FL.
Ratio | Number | |
---|---|---|
PM | Answer | |
AT | Answer | |
FL | Answer | |
ROE |
|
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